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Take the Hedge-Fund Money and Run

The following September, Angelo pleaded guilty to one count of securities fraud and one count of investment-adviser fraud. Four months later came his scheduled sentencing. Those who were there on January 11 remember the courtroom being unusually quiet, like a church. After a long wait, a court officer whispered to one lawyer, “Angelo is in the wind.” Instead of sentencing Angelo that day, the judge issued a warrant for his arrest.

Why did he do it? Why didn’t he just own up to his losses like any other manager would? Perhaps because Angelo wasn’t any other manager: He was a kid in his late twenties who came into the market at a time of historic growth and rode that wave to stratospheric returns. When the inevitable downturn came, Angelo had no reference point. He had no way of knowing that the bear market might stick around for a while. “There was an element of believing that all he needed was time,” says a source close to the U.S. Attorney’s Office. “But it’s not an on-off switch. And the more you get desperate, the more you do horrible things.” (Angelo’s criminal attorney, Maranda Fritz, won’t comment on her client other than to say he was a well-intentioned kid who made a lot of money for a lot of people before getting in over his head.)

Angelo was also in deeper than a lot of money managers because his investors were family and friends. “Everyone’s been coming to you for some time saying you’re doing great, treating you like a financial wizard and a savior,” says a source close to the prosecution. “It’s a status thing. You’re admitting that you can’t beat the markets every time and you’re not as infallible as you thought you were.” Finally, to Angelo, the near-total absence of regulation and oversight of hedge funds must have seemed like a joke. Or an invitation.

Angelo’s calculation to run must have looked something like this: If he stayed, he’d have to do as many as fifteen years and pay millions in compensation and fines. He’d also lose access to whatever money he may have hidden away offshore—and the ability ever to trade again. Then there was his family. Liz would probably divorce him; her family is said to have urged her to leave him, and one source says that by last January she’d moved out of her in-laws’ basement, where Angelo was under house arrest. And Christina would grow up seeing her father behind bars. “Angelo would never have tolerated the daughter being brought in to see him,” a friend says.

One aggrieved investor says Angelo began calling him every hour to make a $5 million deposit. “Today’s a great day! The market is positive! You know how much money you’re losing?!”

So he could run. In that scenario, there was no jail time, assuming he was resourceful enough not to get caught; the possibility of accessing millions in foreign accounts; even, perhaps, the ability to do business again, out of reach of the laws of the United States. Yes, there would be some sacrifices. His parents had put up a $1 million bond for his bail, secured by the house in Flushing where Angelo grew up. If he left, the home would be lost to the Feds. He wouldn’t see Liz or Christina again for years, perhaps ever.

But factor in a fondness for the finer things in life, an excessive comfort with risk, and an almost pathological sense that he could beat just about any system, and Angelo’s choice probably wasn’t much of a choice at all. Some experts wonder why more white-collar criminals don’t try to put off prison by fleeing. “I think it’s remarkable that Bernie Ebbers drove himself to jail for twenty years,” one former white- collar prosecutor says. “Why not flee? Go to Canada, go to Mexico? You’re starting with people who don’t have a straight moral compass. They do a moral calculus where they decide to try life on the run and put this problem off. Anything can happen before sentencing, but then you go.”

Most fugitives drop out of sight for months or years before reaching out to loved ones. Angelo waited just a few days before calling his wife. Liz told the marshals about a week after his disappearance that he had been calling—telling her he was okay, asking how Christina was doing. Angelo’s first call came from his grandmother’s house in Athens, Liz told the marshals. But by the time she was talking to them, she said, Angelo had moved on and she didn’t know where he was. Liz has told the marshals she didn’t know of Angelo’s plans to flee and isn’t helping him now (she declined to be interviewed for this story, but her attorney adamantly maintains she’s done nothing wrong). Living in Manhattan with Christina and working for her father’s construction company, she has told the marshals she’s trying to move on with her life.